Last year may be remembered as a turning point in US equity trading as commission management arrangements came of age, according to consultancy Greenwich Associates.

The firm’s 2008 US Equity Research study found that more than 45% of US institutions used commission sharing arrangements last year, compared with 25% the previous year.

With the traditional model, fund managers receive so-called soft dollars, or research and other services, in return for routing trading orders to brokers at higher than normal commission rates.

In 2006, the UK introduced unbundling, which forced the buy side to separate the costs of research and trading. In the US, the Securities and Exchange Commission issued a release which provided a “safe harbour” when research services are obtained through commission sharing arrangements, or client commission arrangements as they are known in the US. These work by allowing clients to tell a broker-dealer who executes the trade that a portion of the commission will be credited to purchase research from that broker or another research provider.

Andrew Donohue, a director in the investment management division at the SEC, said in a speech given in June that the changes had been positive for the market. He said: “Client commission arrangements are allowing advisers to choose brokers solely on the basis of execution performance, while obtaining research from a number of other providers.”

Donohue said his division was developing a recommendation as to how fund directors should oversee the trading practices of investment advisers to protect investor interests. He also said that mutual fund boards needed additional guidance to assist with their responsibilities for best execution.

Michael Schaftel, head of sales trading for the Americas at Morgan Stanley, said the bank was a proponent of CSAs, as it allowed clients to pay for what they valued, whether advisory services or execution. He said: “If you can solve clients’ problems and have strong client relationships then commission sharing arrangements can only be a win-win situation. We value the additional flow to us and the opportunities for extra dialogue, and clients have a lot more flexibility on where they can trade and find liquidity.”

John Meserve, executive managing director of BNY ConvergEx Group, estimated that 60% of the agency broker’s clients had developed pools to pay part of the commission to other brokers, and he expected this to rise, as it increases transparency. He said: “The commission management train has left the station.”

He predicted this could favour large dealers and force consolidation among smaller firms that already face pressure from an increase in electronic trading.

The Greenwich survey found that institutions using CSAs have stopped trading with between 18 and 19 firms that now get paid for their research via dark pools, venues that do not publicly display prices. Jay Bennett, a Greenwich analyst, said: “Brokers who find themselves relegated from a trading relationship to the status of CSA commission recipient will not necessarily find the transition a profitable one.”

The survey found that around half the commissions paid by commission pools were retained by the executing broker, with the remainder passed to third-party research providers. Meserve said commission management arrangements had been beneficial to independent research providers who had been able to set up without having to provide execution, because the SEC release allowed them to receive commissions without being a broker-dealer.

Sandy Bragg, chief executive of Integrity Research Associates, which provides information on alternative research firms, said research commissions for bulge bracket firms were holding steady and that an increasing amount was being spent on independent providers. He said: “It is second-tier broker-dealers who are being squeezed out.”

Greenwich interviewed 230 US equity fund managers and 272 US equity traders about current market practices, trends and compensation between November 2007 and February 2008.